Rising house values in Texas came with a price.
According to the Texas Housing Insight Report, home costs rose 19% from January 2021 to January 2022.
Robust demand for houses and soaring inflation, which has contributed to increased housing costs, have sent some homeowners rushing to check on their property taxes.
Voters bought some relief with the passage of Texas Proposition 1 and Texas Proposition 2 in early May.
Proposition 2 provides Texans a more significant break on their property tax bills by moving the homestead exemption from $25,000 to $40,000. This means that the first $40,000 of a home’s assessed value is exempt from school district taxations.
According to the Legislative Board, the estimated cost of the new bill is $355 million in 2023.
State Senator Paul Bettencourt, a Republican from Houston, said the bill could save $175 on property taxes for a house that is worth $300,000.
It’s been a slow, steady climb for Texas to raise the exemption. In 2015, the exemption was increased from $15,000 to $25,000. In 1997, the exemption was increased from $5,000 to $15,000.
What does this mean for your home? Let’s say your home is valued at $100,000. With a $25,000 exemption, your property tax bill is calculated on only $75,000 of value instead of $100,000. With the exemption increased to $40,000, you would only pay taxes on $60,000 of value.
Meanwhile, Proposition 1 cuts school district taxes for anyone over 65 or for disabled property tax owners. Proposition 1 passed with roughly 87% of the voters, while support for Proposition 2 was around 85%.
Proposition 1 allows homeowners who are at least 65 years old and those who are disabled to get relief from new measures the legislature has taken to push down property taxes. In Texas, at age 65, property taxes are capped, meaning they won’t rise or fall. With the new bill, anyone over 65 or anyone that is disabled might also see their property taxes decrease.
The Texas legislature is exploring other ways to slow down the growth of property taxes. Lt. Governor Dan Patrick wants to have property tax cuts and reforms in place before the 2023 legislative session. Bettencourt is chairing a committee that is looking into options to bring change.
The issue is simmering between Democratic governor candidate Beto O’Rourke and current Republican Governor Greg Abbott. O’Rourke’s solutions result in businesses potentially receiving less TIF money and fewer property tax breaks than they get now. He said that should reduce the property tax bills for single-family homeowners.
Abbott touts his accomplishment of reducing the property tax bill by $19 billion since he was first elected in 2014. Abbott has proposed a property bill of rights to increase transparency about how your property bill is compiled.
In 2019, Texas required any property tax increase of more than 3.5% to be approved by county voters. Abbott’s proposal also calls for a mandatory 3% discount for anyone that pays their property tax in full by Jan. 31. Under Abbott’s plan, a person who bought a home that is appraised for less than the taxable value will pay taxes on the purchase price of the home, not the appraised amount.
According to the Tax Foundation, property taxes in some Texas counties are among the highest in the country. Texans paid around 1.6% of their home value in property taxes in 2019. That ranked as the sixth highest in the country. By multiple measures-effective tax rates, taxation by county-Texas ranks inside the top 10. Texas ranks 13th in states for property tax collection.
The single biggest driver of the elevated property tax rates is the absence of a state income tax. Texas gives local municipalities significant leeway to collect taxes, and often the burden falls on homeowners. In some states, an increase in school funding for a district requires a referendum vote. Abbott has proposed standardizing how counties can collect taxes.